Market instability ‘putting a damper on sales’ 

Sales momentum slowed last month, closing the chapter on a spring homebuying season that never fully found its footing.

Existing home sales were down 2.4% in June compared to the previous month, according to the latest National Association of Realtors data. Inventory dropped 0.6% for the same period, a sign that the market could be winding down heading into the summer months.

The June slowdown lowered the seasonally adjusted annual rate of sales to 4.09 million, below forecaster expectations of 4.2 million, but the numbers are still looking better than last year.

On an annual basis, existing home sales were up 2.8%, and affordability has improved year-over-year as wage growth, currently at 3.5%, outpaces home price growth, which has slowed to 1.8%.

Market in 'a holding pattern'

The monthly decline in existing sales reflects the uncertainty in the overall market, according to Ali Wolf, chief economist at NewHomeSource.

"Discretionary buyers who have the flexibility to pause their buying plans will stay in this holding pattern until they feel conditions are more stable. Sellers too may be more cautious about listing their homes, and the combined effect is putting a damper on sales," Wolf said, adding that the new home sector is seeing a similar slowdown.

Given the "stickiness" of mortgage rates in the 6.5% range, "home sales will likely move sideways for the rest of the year," said Nancy Vanden Houten, lead economist at Oxford Economics.

Vanden Houten also noted that higher-priced homes are outperforming the rest of the market, with sales of $1 million+ homes up 18% year-over-year — a sign that affordability challenges are more intense for lower-income and first-time-buyer households.

Mortgage rates on the rise

The 30-year mortgage rate continues to react to the situation in the Middle East and its effect on energy prices. With the ceasefire apparently ending in the U.S. war with Iran, oil prices are trending up, and that's raising inflation concerns that can indirectly impact mortgage rates.

The 30-year fixed-rate mortgage averaged 6.49% this week, according to Freddie Mac. That's up from 6.43% the week before, but it has remained within a narrow range of around 6.5% since mid-May.

In recent days, however, Mortgage News Daily has noted a rise in rates, putting the average 30-year rate at 6.68% on July 8.

"Mortgage rates looked like they were poised for a retreat in recent weeks, but the deterioration of the situation in Iran has put them on an upward trajectory yet again," Realtor.com Sr. Economist Joel Berner said in response to the uptick.

Elevated rates appear to be dampening mortgage application activity, which fell 2.2% for the week ending July 3, according to the Mortgage Bankers Association. 

Pending sales buck the trend

Not all of the housing data was gloomy this week: Redfin reported that pending sales were up 1.3% from a week earlier and up 6.3% year-over-year, putting signed sales contracts at the highest level since the bustle of activity in early May.

It suggests that despite the ongoing challenges, there is still some resiliency in the market, according to Chen Zhao, Redfin's head of economics research.

"While near-record prices and a lack of new listings are keeping many would-be buyers on the sidelines, there are enough house hunters hitting the pavement to push pending sales up," Zhao said. 

"If that trend continues, we may get more fresh listings from sellers hoping to take advantage of demand and high prices."